Central Bank Approves Providus Bank’s Takeover of Unity Bank with N700bn Loan Boost

The Central Bank of Nigeria (CBN) on Tuesday announced it had granted approval for a pivotal financial takeover of Unity Bank Plc by Providus Bank Limited with an asset ownership of 80-20 percent (80 percent Providus, 20 percent Unity Bank).

THISDAY gathered that the financial accommodation included N700 billion to the new entity, structured as a 20-year term loan.

The loan will be priced at an interest rate of Monetary Policy Rate (MPR) minus 11 per cent, subject to a minimum of six per cent.

According to a CBN letter titled, “Request for Merger Approval and Financial Support, “addressed to Managing Director, Unity Bank Plc, dated July 22, 2024, and signed by CBN acting Director, Banking Supervision, Dr. Adetona Adedeji, payments of the loan are to be made semi-annually, with a principal moratorium of five years.

Beginning in the sixth year, the new entity will commence repayment in 15 equal instalments until maturity.

The central bank specified that the total obligation of Unity Bank amounting to N303.7 billion (comprising N92.00 billion of First Bank of Nigeria exposure on clearing obligation, N51.70 billion financial accommodations of the CBN, N25.00 billion Anchor Borrowers Programme obligation, and N135.00 billion NIRSAL obligation) will be deducted from the N700 billion financial accommodation.

It added that obligations to the CBN and NIRSAL will be settled accordingly. Also, the balance of 4396.30 billion from the financial accommodation would be invested in a 20-year Federal Government of Nigeria (FGN) bond.

The N396.30 billion invested in the 20-year FGN bond will qualify as a Tier 2 capital instrument and component of shareholders’ funds, CBN added.

Unity Bank’s current Cash Reserve Ratio (CRR) shortfall of N117.90 billion had been waived from being debited.

CBN added that Providus Bank’s CRR balance, post-merger, will serve as the opening balance of the new entity.

Nonetheless, CBN said the strategic merger was designed to bolster the stability of the country’s financial system and avert potential systemic risks.

In a statement by acting CBN Director, Corporate Communications Department, Mrs. Hakama Sidi Ali, the apex bank said the merger was contingent upon the financial support from the CBN.

Ali said the fund will be instrumental in addressing Unity Bank’s total obligations to the central bank and other stakeholders.

She said the apex bank’s action was in accordance with the provisions of Section 42 (2) of the CBN Act, 2007.

According to Ali, “This arrangement is crucial for the financial health and operational stability of the post-merger organisation.”

The central bank further stressed that no Nigerian bank currently faced a precarious situation comparable to that of Heritage Bank, which was recently liquidated.

The apex bank reiterated its commitment to safeguarding depositors’ interests and ensuring the smooth functioning of the banking sector through proactive measures and strategic interventions.

The CBN acting director added that the “CBN’s decision underscores its dedication to maintaining financial stability and promoting confidence in the banking system during this transformative period.”

In a joint statement on Tuesday, Providus Bank and Unity Bank declared that they were pleased that the CBN approved the framework for their merger, “marking a significant milestone in the evolution of our respective institutions.”

The statement said, “This proposed merger represents a strategic and complementary union that will leverage the strengths of both banks to create a leading financial institution in the industry with footprints in retail, corporate, commercial, and digital banking.”

Unity Bank, with its rich legacy of over 18 years, had established a robust retail banking network, comprising more than 220 branches nationwide.

“With a strategic niche in the agricultural business, our commitment to delivering exceptional customer service and a comprehensive range of financial products has earned us the trust and loyalty of millions of customers,” the bank said.

Providus Bank, on the other hand, is renowned for its innovative approach to banking, boasting a strong digital footprint, innovative products, high quality service culture and strong focus on helping customers grow.

It said, “As a fast-growing new-generation bank, ProvidusBank has consistently pushed the boundaries of technology to deliver cutting-edge financial solutions that cater to the evolving needs of modern consumers.

“The combination is driven by a shared vision to provide an unparalleled banking experience to our customers.”

The statement added, “By combining Unity Bank’s extensive branch network and deep-rooted customer relationships with Providus’s digital prowess and innovative spirit, we aim to deliver a seamless blend of traditional and modern banking services.

“Our customers will benefit from an expanded suite of products and services, greater convenience, and improved access to banking solutions across various channels.

“The integration of our digital platforms will offer enhanced security, faster transactions, and a more personalised banking experience.”

It further stated, “As we embark on this journey together, we remain committed to maintaining the highest standards of corporate governance, financial stability, and customer satisfaction.

“Our united team of dedicated professionals will work tirelessly to ensure a smooth transition and continued tradition of excellence in all our operations.

“This combination signifies the beginning of a new chapter in our shared history, one that is filled with promise and potential.

“We are confident that the combined strength of both entities will create a formidable force in the banking sector, driving innovation, growth, and prosperity for our customers, employees, and stakeholders.

“We extend our heartfelt gratitude to the Central Bank of Nigeria for their consideration and approval and to our customers, employees, and partners for their unwavering support.

“Completion of the proposed merger is subject to the final approvals of the respective boards, shareholders, and relevant regulatory approvals.”

Providus’ sound financial footing was evidenced by its positive performances in recent times. The bank improved its Profit After Tax (PBT) to N44.87 billion in 2023, from N8.03 billion in 2022.

It also grew its assets to N1.75 trillion, compared to N735.81 billion in the review period.

Providus further reduced its portfolio of Non-Performing Loans (NPLs) to 2.5 per cent, from 4.1 per cent.

However, recently, Chief Executive, Afrinvest Group, Dr. Ike Chioke, said the banks’ new capital raise posed new challenges for the industry, particularly, in terms of achieving the $1 trillion economy.

Speaking at the launch of the 2024 Afrinvest Banking Sector Report, titled, “Bank Recapitalisation: Catalyst for $1 trillion Economy?” in Abuja, Chioke said the entire banking industry needed N4.1 trillion (about $3 billion) to meet the new minimum capital requirements.

Chioke specifically predicted that mergers and acquisitions were likely to happen, though none had occurred yet.

Chioke said, “We have not seen anybody trying to do any mergers and acquisitions. But the evidence of the M&A that was done in the past doesn’t paint a very rosy picture for some of those M&A transactions.

“And the last but not the least, the license downgrade or upgrade. Well, that’s a very challenging one. But today we have quite a number of offers in the market.”

James Emejo and  Nume Ekeghe

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